U.S. LNG profit seen elusive as price gap closes

Profits from selling U.S. liquefied natural gas abroad may be elusive, belying the $60 billion race for export licenses as the price gap between Asia and North America shrinks from record levels.

The difference between U.S. and Asian gas is poised to drop by more than 60 percent by 2020, leaving exporters facing a loss of as much as $6 million per tanker, according to calculations by Bloomberg based on data from Rice University in Houston. The U.S. share of the global LNG market will be in “single digits,” according to Royal Dutch Shell Plc, which has stakes in more than 25 percent of the world’s liquefaction capacity.

As many as 16 applications for LNG export projects from Texas to Maryland and Oregon are being considered by the U.S. Department of Energy as companies look to follow Cheniere Energy Inc. in exploiting record price differentials between the U.S. and Japan, the world’s largest consumer. Buyers from Tokyo to London are seeking supplies in the U.S., where prices are less than a third of those in Europe and a fifth of Asian costs.

“The idea that the world will be flooded with spot LNG is not going to happen,” said Frank Harris, global head of LNG at Wood Mackenzie Ltd. in Edinburgh. “Returns are already getting squeezed. By the end of the decade, the LNG market looks better supplied, and spot cargoes from the U.S. won’t necessarily look so attractive.”

Losses Increasing

U.S. natural gas has risen 71 percent from a decade-low in April to $3.246 a million British thermal units in electronic trading today on the New York Mercantile Exchange. U.S. exports to Asia would help damp the Platts Japan-Korea Marker, a daily price assessment of Asia-bound LNG known as JKM, to a mean of $8.08 through 2020, from $17.80 yesterday, Rice University’s James A. Baker III Institute for Public Policy said in a study.

The average cost of shipping U.S. natural gas to Japan will be $9.05 from 2011 to 2020, assuming a U.S. price of $3.98, leaving a loss of $0.96 per million Btu taking into account the costs of transportation and liquefaction, the study shows.

Losses widen to $1.77 per million Btu in the decade to 2030 as the price at Louisiana’s Henry Hub, the U.S. benchmark, rises to an average $4.69 and the JKM falls to $7.98, according to the study, published Aug. 10.

The loss to the U.K. is $0.49 through 2020 and $1.23 from 2021 to 2030. U.K. next-month gas, the European benchmark, today rose 0.1 percent today to the equivalent of $10.86 on London’s ICE Futures Europe exchange.